More On Legal & Compliancefrom The Advisor's Professional Library
- Updating Form ADV and Form U4 When it comes to disclosure on Form ADV, RIAs should assume information would be material to investors. When in doubt, RIAs should disclose information rather than arguing later with securities regulators that it was not material.
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
“Policies and procedures is one of the scariest forms ever,” Tom Giachetti said at a presentation in Denver to advisors and compliance officers Thursday morning.
The session, sponsored by Laserfiche, featured the frank talk and salty language for which Giachetti (right) is known. If you want it straight, Giachetti, chairman of the securities practice group at the law firm of Stark & Stark and a columnist for AdvisorOne, is your man.
The policies and procedures comment is part of a larger story he frequently delivers about the importance of avoiding compliance vendors, or at the very least assuring that the forms they sell are customizable to the particular advisor's situation and business.
“If the Kool-Aid compliance salesman doesn’t allow you to unlock their PDFs to make changes, fire their a**,” he said. “These are your policies and procedures and it’s your backside on the line. The salesman won’t be there when you get examined. It’s a case of one size fits nobody.”
He asked how many in the audience feel like they have a strong “culture of compliance” to a number of raised hands. As he ticked off a list of must-haves, however, hands began to drop.
“How many of you have a whistleblower policy in place?” he asked. “It’s been required for the past two years. How many of you have a pay-to-play policy in place? That’s been required for three years. If any of your forms have 2009 or 2010 on them, you don’t have a culture of compliance. Throw them out and get new ones.”
Claiming that he could cut the cost and time of the attendees’ compliance-related issues in half, Giachetti said he didn’t want them to have “knee-jerk reactions to compliance or to abide by things that don’t make sense. These are your policies and procedures, but most of you have them in place because you heard from someone else that you needed them.”
He related a story of a phone call he recently had with a chief compliance officer and an advisor at her firm.
“She called me all upset because the advisor had just received a gold Rolex watch from a client. She demanded he give it back. I said, ‘Why? Your job is not to demand, it's to investigate.’ It turns out that the client was recently widowed and the advisor had really helped steer her through the legal and financial issues. She wanted him to have it as a token of appreciation for being there for her. It was perfectly acceptable.”
He then warned about marketing material and testimonials.
“How many of you are comprehensive financial planners?” he asked. “Are you really—you know all and do all? No, you offer comprehensive financial planning, and that is a big distinction.”
He said an investment policy statement longer than a few pages is “too long. Your clients won’t understand it.”
He concluded by noting that if clients outlive their assets, “you’re gonna get sued. I recommend the first letter says, ‘Mrs. Jones, we have a problem.’ The second letter will say, ‘Mrs. Jones, we still have a problem.’ The third letter will say, ‘Mrs. Jones, since you haven’t responded, you’re fired.’ The fourth letter will say, ‘Mrs. Jones, since you begged us to get back in, here is a hold harmless agreement for you to sign.”
Check out Tom Giachetti's columns on AdvisorOne: